How climate change is reshaping home insurance in 2025

*This article was updated on January 16, 2025 to include the most recent insurance loss figures as well as information about the LA wildfires

The wildfires tearing through Los Angeles are set to become the most expensive disaster in U.S. history, with damages projected to reach $200 billion. These devastating fires are destroying homes and taking lives, and they are also pushing California’s fragile insurance market to the edge of collapse.

In this article we’ll explore how climate change is driving a crisis in the insurance industry, how they’re responding, what you can do to protect your home and pocketbook whether you own or rent.

A WARNING BELL RINGING IN CALIFORNIA

In March of 2024, California’s largest property insurer, State Farm General Insurance Co., announced that it would not renew 72,000 home and apartment policies statewide. The company cited increased risks from climate-driven disasters like wildfires.

Pacific Palisades, one of the areas hardest-hit by the fires, has felt the brunt of these cancellations. Just months before the fire, nearly 70% of State Farm policies in the area were terminated.

As private insurers withdraw from high-risk areas, the state has been forced to step in through programs like the FAIR Plan, California’s insurer of last resort. Between 2020 and 2024, the number of policies covered by the FAIR Plan has doubled. 

Following the LA fires, experts are warning that the FAIR Plan may not have enough funds to cover the costs of the damage. This is pushing the insurance industry into uncharted territory. 

Imagine losing your home, the fires still burning, and reading that your insurance agency might not have the money to cover you. This is the unthinkable situation now for so many.

While climate change is driving more disasters like the catastrophic fires we’re seeing in LA, more and more communities are at risk. Take Hurricane Helene, for example, which recently devastated Asheville, NC – an area once considered a climate haven.

The insurance industry’s response to these climate disasters offers a glimpse of what the future may hold for homeowners and renters everywhere. 

RISING RISKS, RISING COSTS

In the United States, the combined cost of climate disasters between 1980-2024 has reached nearly $3 trillion. With the LA wildfires expected to add over $200 billion to the 2025 tally in January, this year is set to break all records.

In Canada, a recent report from CatIQ which tracks insured losses from disasters found that 2024 was the costliest year on record for the country. Insured losses last year totaled $8.5 billion – more than $2 billion higher than 2016, when the Fort McMurray wildfire set the previous record.

At the same time, more people than ever in Canada and the United States are moving into areas of high risk for climate-fuelled flooding, wildfires, and hurricanes. This movement is largely driven by a search for better jobs and a lower cost of living. 

For many it’s a situation of survival – they may be aware of the risks but feel they have no better option if they want to pay the bills and put food on the table.

Property developers are also taking advantage of lower costs to build in areas prone to climate disasters. For example, new housing is built in flood prone areas on the East Coast of the US at a rate two to three times higher than average. This hits lower income families the hardest, and contributes to the unequal impacts of climate change on communities of colour.

As a result, 1 in 10 Americans now lives in areas at high risk for flooding. In Canada, over four million people live in areas at high risk for wildfires – with rural and Indigenous communities especially vulnerable.

HOW INSURANCE COMPANIES ARE RESPONDING

In the United States, climate disasters cost insurance companies $182.7 billion in 2024 alone. Now insurers are raising rates to cover these growing losses.

In highly vulnerable states like Florida, average home insurance rates are now as high as $8,770 – more than triple the average for the country as a whole.

In Canada, insurers are warning that we can expect a significant spike in rates in 2025, on the heels of 2024’s record-breaking damage. 

Alberta, which has suffered both catastrophic flooding and wildfires in the past decade, is one of the hardest-hit provinces. The average home insurance rates have risen 140% since 2011, with an increase of 9.25% in 2024 alone.

Even people in historically low-risk areas are feeling the impact. As climate disasters drive up insurance losses, prices will keep rising for everyone – whether you’ve been hit by a disaster yet or not. And that’s if you can get coverage in the first place. 

The insurance industry was built for a more stable world, and as we lose that it will have to change. There are big questions for the industry, and for governments who will have to face crises like the one we are seeing in California now. 

The answers to those questions will impact your pocket book, and even where you can afford to live.  My Climate Plan will help to make sure you have a say in them. For now, let’s turn back to what climate disasters mean for you personally at this moment in time. 

WHAT THIS MEANS FOR HOMEOWNERS AND RENTERS

According to Benjamin Keys, a professor of real estate and finance at the University of Pennsylvania’s Wharton business school, the unstable insurance market is leaving homeowners with “fewer choices, less protection, and more financial distress.”

Some homeowners can’t afford the rising insurance costs, leaving them responsible for covering any damage out of pocket. If they can’t find affordable coverage – or any coverage at all – they may also risk being unable to renew their mortgage.

But it’s not just homeowners who are vulnerable. Renters have very little control over what happens to their homes. If their landlords don’t have the right insurance coverage and disaster hits, they may be left to live in unsafe conditions for months or even years.

HOW YOU CAN PREPARE

• Homeowners: Check your insurance policy to make sure it covers the risks most common in your area. If you’re not sure what those are, call your insurance agent and ask. They can help identify any gaps and suggest extra coverage if needed.
  
  If you’re in the market for a new home, experts suggest taking a close look at risks for that property and community in the coming years, and factoring that into your decision making.
  
• Renters: Ask your landlord what kinds of coverage they have for your home. It is also a good idea to have renter’s insurance to make sure your personal property is covered, and you can look into buying additional standalone insurance for impacts like flooding.
  
• Both: Whether you’re a homeowner or a renter, there are steps you can take to protect your home, loved ones, and community from climate disasters. The My Climate Plan platform can help you do just that.
  
  Covering climate impacts like floods, extreme heat, and wildfires, we offer personalized actions tailored to your circumstances. It’s free to make a plan, and it comes with ongoing support.

Do you have a story or question about home insurance in a changing world? We’d love to hear from you. Share your experiences, thoughts, or concerns with us at community@myclimateplan.com.